What is the auditor's objective in auditing Deck Medic's financial statements?
Deck_Medic Franchise · 2024 FDDAnswer from 2024 FDD Document
bility to continue as a going concern within one year after the date that the financial statements are available to be issued.
Auditor's Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with generally accepted auditing standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in aggregate, they would influence the judgment made by a reasonable user based on the financial statements.
In performing an audit in accordance with generally accepted auditing standards, we:
- Exercise professional judgment and maintain professional skepticism throughout the audit.
- Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or\nerror, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
- Obtain an understanding of internal control relevant to the audit to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Deck Medic, Inc.'s internal control. Accordingly, no such opinion is expressed.
- Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements.
Source: Item 23 — RECEIPTS (FDD pages 43–228)
What This Means (2024 FDD)
According to Deck Medic's 2024 Franchise Disclosure Document, the auditor's objective is to gain reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. The auditor then issues a report containing their opinion on the financial statements. The FDD clarifies that while reasonable assurance is a high level of confidence, it is not an absolute guarantee that all material misstatements will be detected. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
For a prospective Deck Medic franchisee, this means that the financial statements presented in the FDD have been examined by an independent auditor to provide an opinion on their fairness and accuracy. This audit aims to ensure that the financial information is reliable and can be used to make informed decisions. However, it's important to recognize that the audit is not a guarantee against all errors or fraud, and the auditor's opinion is based on the evidence available to them.
The auditor's responsibilities include exercising professional judgment, identifying and assessing risks of material misstatement, obtaining an understanding of internal controls, evaluating accounting policies, and assessing the reasonableness of management's estimates. The auditor also has to conclude whether there is substantial doubt about Deck Medic's ability to continue as a going concern. These procedures are designed to provide a thorough review of the financial statements and underlying accounting practices.
Material misstatements are those that could influence the judgment of a reasonable user of the financial statements. This definition highlights the importance of the audit in providing reliable financial information for potential investors, franchisees, and other stakeholders. By understanding the auditor's objectives and responsibilities, a prospective Deck Medic franchisee can better assess the credibility and reliability of the financial information presented in the FDD.